#35)
#36)
Please ignore the blue scribbling on top, it was a mistake.
#44)
Allocative efficiency basically when the marginal benefit is equal to the marginal cost; equilibrium. When price controls are set, this equilibrium is ignored and there are either excesses or shortages. This means that whenever price controls are set, they reduce allocative efficiency as it does not allow the marginal benefit to equal to the marginal cost.
#46)
Rent control would probably mean that there would be a price ceiling as people wouldn’t want rents to soar up to a very high amount. In this case, there would be a shortage of houses.
If a price ceiling for rent is set, this means that there will be a shortage of homes. This, in turn, would bump the prices of rent to or very near to absolute highest price that the rent can go.
The rent control would have it’s own benefits and disadvantages. Benefits are the fact that prices would go down. The disadvantages, however, could be more than the benefits.
The disadvantages include: reduced market size, a formation of a black market (where houses are rented for above the ceiling) and a shortage of homes.
Overall, a rent control would be a bad idea.
Page 121: Explain, using a diagram, the effect of a specific tax on various stakeholders
The green box is the original revenue, the blue box is the new revenue with tax, the red box is the producer revenue after tax, the orange box is the producer tax and the purple box is the government tax revenue.
The following graph is the supply and demand graph of external harddrives after a government tax is imposed. The three main stakeholders in the external harddrives with tax would be: the consumer, the producer and the government. Additional stakeholders include the companies that provide raw materials, producers of substitute goods and the employees of the producer company.
The consumer would see an increase in price. While the price from the producer would drop to about ¥3950, there would be a ¥1,250 tax imposed on the HDD, therefore the net price would be ¥5,200, a ¥1,200 increase in price from ¥4,000. Because of this increase in price, the consumer quantity demanded would fall from approximately 40,000 units to 28,750 units demanded assuming ceteris paribus. Consumers would start looking at substitutes for external HDD, such as a cheaper, more portable however smaller flash/thumb drive or a possibly more expensive however bigger and more long term internal HDD. Producers of substitute goods would see a possible increase in demand (again, assuming ceteris paribus).
The producer will face losses; the producer revenue sans tax is ¥150,937,500 while the producer revenue with tax is ¥82,512,500–this shows a net loss of ¥68,425,000, about 45.3%. This can and will effect the employees of the producer company. Given that a company is losing about 50% of its revenue, it will not be able to support its employees. Therefore, there will be mass layoffs occurring in the producer company. Unemployed workers turn into freeloaders as they do not contribute to the market–this reduces a markets efficiency. Given a 50% loss, the producer may need to shut down a few manufacturing plants, given that they have multiple manufacturing bases. Market size will also be affected as few producers may decide to shut down or to move to different industries with more profit in them.
As market size decreases, the demand for raw materials that make up external harddrives will see loss. As the demand for raw materials decreases, the raw material producers will see an excess in raw materials, causing the price of raw materials, that are related to the production of external harddrives, to decrease. Also, as market size decreases, in the short term, the prices of external harddrives will rise even further as there will be a shortage of harddrives.
The government will see profit–they are more or less the only main stakeholder that benefit from taxes in the market term. The government will gain revenue from the ¥1,250/unit tax imposed on external harddrives–an overall revenue of ¥35,937,500. The government can later on, in the short/long term, use this money for developments/stimuli/subsidies/debt repayment/etc., however with the opportunity cost of a profitable external harddrive market.
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